New Chapter 1

7/31/2019 New Chapter 1

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CHAPTER 1:

AN INVESTMENT

PERSPECTIVE OF

HUMAN

RESOURCE

MANAGEMENT

Copyright © 2005 South-Western. All rights reserved.



Copyright © 2005 South-Western. All rights reserved. 1 –2

The Strategic View of Human Resources

• Employees are human assets

– Increase in value to organization and marketplace when

investments of appropriate policies & programs are applied

• Effective organizations recognize that employeeshave value

– Much as organization’s physical & capital assets have value

• Employees are valuable source of sustainable

competitive advantage




Exhibit 1-1

Sources of Employee Value




Sources of Employee Value

• Technical Knowledge

– Markets, processes, customers, environment

• Ability to Learn and Grow

– Openness to new ideas – Acquisition of knowledge & skills

• Decision Making Capabilities

• Motivation

• Commitment

• Teamwork

– Interpersonal skills, leadership ability




Adopting an Investment Perspective

• Determines how to best invest in people

• Costs

– Out-of-pocket

– Opportunity

• Human assets become competitive advantage

• Required skills become less manual, more

knowledge-based• Appropriate, integrated, strategy-consistent

approach is needed




A Dilemma

• Failure to invest in employees causes

– Inefficiency

– Weakening of organization’s competitive

position

• Human assets are risky investment

• Require extra effort to ensure that theyare not lost


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Exhibit 1-2

Types of Organizational Assets/Capital



Research Findings

• HR practices directly related to profitability &market value

• Primary reason for profitability:

– Effective management of human capital• Integrated management of human capital can

result in 47% increase in market value

• Top 10% of organizations studied experienced

391% return on investment in management of

human capital



Exhibit 1-3

HR Value Chain



HR Metrics Are Complex

• 90% of Fortune 500 organizations evaluate

HR operations on basis of three metrics:

– Employee retention and turnover

– Corporate morale

– Employee satisfaction

• These metrics do not necessarily illustrate

how HR impacts – Profits

– Shareholder value




Mercer Model of Measuring HR Impact

• Identify problem HR can impact

• Calculate actual cost of problem

• Choose HR solution that addresses problem

• Calculate cost of solution

• Calculate value of improvement 6 to 24 months

after implementation

• Calculate specific return on investment• ROI in human assets often not realized until some

time in future




Exhibit 1-4

Factors Influencing Investment

Orientation




Investment-Oriented Organization

• Sees people as central to mission & strategy

• Mission statement & strategic objectives

espouse value of human assets in achieving

goals

• Management philosophy encouraging

development & retention of human assets

• Does not treat human assets in same ways

as physical assets




Investment Orientation Factors

• Senior Management Values & Actions

– Managers need “investment orientation” toward

people

• Attitude Toward Risk – Investment in human resources inherently riskier

– Human assets never absolutely “owned”

• Nature of Skills Needed by Employees – The more marketable employee skills, the riskier the

firm’s investment in skill development




Investment Orientation Factors

• Utilitarian (“Bottom Line”) Mentality

– Attempt made to quantify employee worth through

cost-benefit analysis

– “Soft” benefits of HR programs difficult to objectivelyquantify

• Availability of Outsourcing

– Given availability of cost-effective outsourcing,investments in HR should produce highest returns &

sustainable competitive advantages.




Reading 1.1: The Hidden Leverage of Human Capital

Model for Management Success

• Strengthen key

relationships

– Customers

– Employees

– Shareholders

• Leverage

downtime

– Use variable-pay

– Address neglected

areas:

• Infrastructure

• Marketing• Operations




Reading 1.1

Model for Management Success

• Refocusing staff onwhat’s important

– Performance

management asdisciplined, strategic,

value-added process

– Clearly define,

differentiate & balance

between core

competencies & results

• Building return on

compensation

– Link base-pay

progression tocompetency

achievement

– Link incentive pay to

annual, semiannual, or

quarterly results




Reading 1.2

Seven Common Misconceptions

1. Conscientiousness is a better predictor of performance than intelligence.

2. Companies that screen job applicants for values

have higher performance than those that screenfor intelligence.

3. Integrity tests don’t work well in practice

because so many people lie on them.

4. Integrity tests have adverse impact on racial

minorities.




Reading 1.2

Seven Common Misconceptions

5. Encouraging employee participation is moreeffective for improving organizational

performance than setting performance goals.

6. Most errors in performance appraisal can beeliminated by providing training to managers on

how to avoid them.

7. If employees are asked how important pay is to

them, they are likely to overestimate its trueimportance.




Reading 1.2

Seven Common Misconceptions: Implications

1. Select new employees on both intelligence andconscientiousness.

2. Assess intelligence and conscientiousness before

values.3. Define the values that are important and assess

them through carefully developed, valid

procedures.

4. Use integrity tests with ability tests for high

predictability.




Reading 1.2

Seven Common Misconceptions: Implications

5. Develop compelling goals; enlist participationand support it through rewards.

6. Training and feedback are important, but errors

are difficult to eliminate. Top managers shouldserve as role models in quality of performance

reviews.

7. Attitude surveys are subject to biases; study

behaviors as well as attitudes.




Reading 1.3

Effective HRM Practices

• Employment Security

• Selectivity in Recruiting

• High Wages

• Incentive pay

• Employee Ownership

• Information Sharing

• Participation &

Ownership

• Self-Managed Teams

• Training & Development

• Cross-Utilization &

Cross-Training

• Symbolic Egalitarianism

• Wage Compression

• Promotion From Within

• Taking the Long View

• Measurement of Practice

• Overall Philosophy



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Reading 1.3

Effective HRM Practices

• Very few firms will engage in all practices

• While these practices are important for

success, there are other determinants as

well

• Downsides exist

– Requires more involvement and responsibility than

some employees want – Managers & others may resist them as well

– Turnover may result

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New Chapter 1